Please answer the following research question. You must use the following format: facts, issue, conclusion and law and analysis and prepare a formal memo to the client file.

Parsons Inc. is owned equally by Claudette and James Parsons. They each own 1,000 shares of stock. Claudette would like to redeem 500 shares of stock for $50,000 per share. The companys current E&P is $8,000,000 and accumulated E&P is $40,000,000. Claudettes basis in the stock is $10,000 per share. One slight problem in all of this is that Claudette and James have separated (although not legally) and they refuse to speak to each other or communicate other than through their attorney and you, their accountant.

Claudette would like to know how the redemption will be treated for tax purposes, including her remaining basis in the other 500 shares of stock. You mentioned to her that the family attribution rules may play a role in the tax treatment, but she thinks that should not count because she does not consider herself to be James wife anymore. Please provide her with answers to these questions based on your research and analysis of primary authorities.